Tax Shelters/RSPs and IRAs
The location of where you eat is important to investing. Picture eating outside on a warm sunny day at a sidewalk table, watching the world walk by. This is equivalent to investing in a non-tax- sheltered account. Then imagine a bitterly cold winter's day, with high snowbanks framing the sidewalks, and you're eating at a serene table under a glass solarium with the sun beating down and a roaring fireplace at your side. It is a cozy setting to enjoy and escape the frigid tem- peratures outside. Likewise is investing with a retirement tax shelter.
Investing in a tax shelter like an IRA or an RSP can be just as comfortable as that fireplace setting, because you, don't have to pay any taxes on the
RSP and RRSP are one and the same.
RSP = Retirement Savings Plan
RRSP = Registered Retirement Savings Plan IRA = Individual Retirement Account
money you make. Eating indoors or investing primarily within a tax shelter, such as an RSP or IRA, can greatly influence your decision-making.
People are more hesitant to sell a security that may have an enormous profit or capital gain because of the income tax that must be. paid on the gain. For seniors it may mean a clawback of old age benefits. For other investors it may result in an additional capital gains tax bill in the spring. On the other hand, taking such a capital gain within a retirement plan does not need such consideration. All profits and losses do not need to be reported. When you withdraw funds from a retirement plan, they are fully taxed as income.
The exception is the Roth IRA, which does not incur any taxation at all, but does not allow you a tax deduction for the contributions. You there- fore may choose whether to take capital gains outside of your retirement plan and be taxed immediately, or take capital gains inside of your 135
RSP and pay tax on all of them only when you later withdraw the funds.
Think of your holdings within the retirement plan as the food inside a restaurant. There are many types of foods or dishes. You can pick whichever and change them without any penalty or tax worries, but once you bring them outside you are obliged to pay the income tax. In other words, once you leave the restaurant and take home a doggy bag, you are presented with the tax bill.
The next time you go to a wedding with hun- dreds of guests and you sit down at your assigned table, look around the room. Your table is just like the next. The only exception is usually the head table where the wedding party sits. After the introductory speeches the wait staff start to serve the meal. Depending on the style of wedding, the number of courses and selection will vary. A ban- quet or wedding is exactly how a group pension plan or 40IK works.
Unless someone has asked for something dif- ferent due to dietary restrictions, generally every- one gets the same meal. Likewise for a group plan. There is a manager or committee who makes the investment decisions based on what 13?
Banquets and Weddings/
Company Pensions or 401Ks
Just Say I Do
they believe is good for the whole group. In order to keep things simpler to manage for a large group of investors, you are not allowed to select what is served to you. Individual criteria, such as age and risk tolerance, are not taken into account. There are usually guidelines and goals set for the group plan to ensure that the end result, namely end value, is the same for all.
Most pension plans do well for their investors because there are numerous checks and balances that need to be met each year. These group plans are offered to employees after they have worked for a predetermined period of time. In other words, you have to know the bride or groom long enough to get on the guest list!
The vegetarian or ethical investor is one who, for some reason, chooses not to invest in stocks of a specific industry or sector. The investor wants to know that the company is environmentally and socially responsible, and therefore may conscious- ly choose not to invest in tobacco companies or those that exploit cheap, third-world labor, for example. Companies whose manufacturing pro- cess produce toxins that are emitted into our air, water, or landfills would also be avoided. The eth- ical investor chooses to sacrifice potential invest- ment growth because of strong personal beliefs.
You will know after some research into a company whether you will choose to invest in it based on their philosophies.
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The No-Meat Diet
Vegetarians/Ethical Investors
For the do-it-yourself investor it will require more research to see if you approve of the products and resulting by-products of manufacturers. Ther may be hidden repercussions to the environment with which you don't agree.
There are specific mutual funds that specialize in this kind of investing. It would be more effi- cient to invest via an ethical mutual fund if you are this type of investor. This strategy would be similar to choosing to buy your food at a health food store or from an organic grower.
While the retirement goal for some investors is to spend their hard earned money, most want to pass their assets on to their children or heirs. If you are part of the majority, the simplest way to pass assets on without being subject to probate fees is to
have the assets listed with joint registration with rights of survivorship. This means that if one party dies, the other (or others) solely owns the assets without having to apply for probate on the Leftovers/Estate Planning
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Don't Throw Thay Out
deceased's will. There must be caution taken when choosing with whom to have joint owner- ship of your accounts. Usually it is your spouse.
There may be problems in the case of marriage breakdown, so it is best to get advice from a lawyer. If you do not have a spouse and you name your children, it may help to simplify the settling of your estate.
Some of the many ways to help preserve your assets for your estate can be life insurance, revo- cable trusts, and family trusts. Each country has its own unique estate tax laws. It is important that you investigate what they are, or seek profession- al advice.
What's on the menu for a person aged 25 with earned income?
75% Equity
10% ETF Canadian exchanges 10% ETF American exchanges 25% Blue chip companies 30% Growth companies 25% Fixed Income
5% Cash - T-bills
20% Bonds/stripped coupons - laddered over four years (best in retirement plan)
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